cep discussion paper no 1148 june 2012 the ceo labour market.pdf

ISSN 2042-2695 CEP Discussion Paper No 1148 June 2012 The CEO Labour Market in China’s Public Listed Companies Alex Bryson, John Forth and Minghai Zhou Abstract Using panel data for all of China’s public listed firms over the period 200 1-2010 we examine how firms have recruited and rewarded their executives over a decade of huge growth and turbulence. CEO pay is sensitive to firm performance, although the elasticities are lower than for the United States and Europe, especially with respect to returns on assets (ROA). CEO pay rises with firm size and growth, with elasticities resembling those for the United States. We find no dramatic response to the stock market crash of 2007/08. The elasticity of pay to stock returns falls to zero after the crash, while elasticities with respect to sales and ROA remain significant. Executive cash compensation rose steeply throughout the period – in contrast to the United States. There are steep gradients in executive compensation within firms, consistent with tournament prizes, and around two-thirds of CEO appointments are internal promotions. Within-firm executive compensation rose at a faster rate than executive compensation across firms, helping to explain why CEO turnover rates declined a little over the decade. Turnover rates did not spike with the stock market crash. Privatisation and reforms to corporate governance contributed to growth in executive compensation. A picture emerges of an executive labour market in which firms are linking pay to performance and relying on incentive structures within firms to foster executive talent. JEL Classifications: G34; J31; J33; M12; M52; O16; P31 Keywords: executive compensation; CEOs; corporate gover